CASCADES INC. Bank of America Merrill Lynch 2013 Leveraged Finance - - PowerPoint PPT Presentation

CASCADES INC.

Bank of America Merrill Lynch 2013 Leveraged Finance Conference December 3, 2013

Certain statements in this presentation, including statements regarding future results and performance, are forward-looking statements within the meaning of securities legislation based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand for the Corporation’s products, the prices and availability of raw materials, changes in the relative values of certain currencies, fluctuations in selling prices and adverse changes in general market and industry conditions. This presentation may also include price indices as well as variance and sensitivity analyses that are intended to provide the reader with a better understanding of the trends related to our business activities. These items are based on the best estimates available to the Corporation. The financial information included in this presentation also contains certain data that are not measures of performance under IFRS (“non-IFRS measures”). For example, the Corporation uses earnings before interest, taxes, depreciation and amortization (EBITDA) because it is the measure used by management to assess the

• perating and financial performance of the Corporation’s operating segments. Such information is reconciled to

the most directly comparable financial measures, as set forth in the “Supplemental Information on Non-IFRS Measures” section of our most recent quarterly report or annual report. Specific items are defined as items such as charges for impairment of assets, for facility or machine closures, accelerated depreciation of assets due to restructuring measures, debt restructuring charges, gains or losses on sales of business units, unrealized gains or losses on derivative financial instruments that do not qualify for hedge accounting, foreign exchange gains or losses on long-term debt and other significant items of an unusual or non- recurring nature. All amounts in this presentation are in Canadian dollars unless otherwise indicated.

DISCLAIMER

2

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Doing all the right things to improve a success story

INTRODUCTION

Our recent performance and financial situation

• Cost inflation in 2011/2012 but less volatile cost environment at the moment
• Low economic growth in Canada and Europe but potential for a weaker CAD$
• Productivity and profitability improving  more to come
• 2011 left us with an over-levered balance sheet but no immediate maturity

Where we come from

• Unique culture – green visionaries, turnarounds, entrepreneurial philosophy
• Business model challenged with dollar near parity + volatile recycled fibre costs

Our action plan

• Started at the end of 2011: a lot has been done but not completed yet
• Investments reflected on balance sheet but not yet in results
• New state-of-the-art Greenpac mill ramping-up according to plan

  

OVERVIEW OF OUR OPERATIONS

Green packaging and tissue product offering

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Packaging Products Tissue Papers Containerboard Boxboard Europe Specialty Products

Leading NA packaging and tissue manufacturer with substantial recycling capabilities

1st tissue paper

producer in Canada

4th in North America 1st

paper collector in Canada

2nd

producer in Europe

1st containerboard

producer of in Canada

6th in North America

OVERVIEW OF OUR OPERATIONS

Closed-loop business model

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100+ business units

33 units2 23 units 57 units2 Trims and rejects sent to recycling centers 77% recycled fibre (2.9M tons) NA integration rate (2012): 34% (520K tons) NA integration rate (YTD 2013):

• Containerboard Group1: 53%
• Tissue Papers Group: 69%

1 Combined integration rate for our containerboard and boxboard activities in North America. 2 Including Reno De Medici’s units. Also including seven manufacturing/converting tissue papers units which are counted in both Converting and Manufacturing.

Upstream and downstream integration in North America

CLIENTS

OVERVIEW OF OUR OPERATIONS

Balanced play in less cyclical sectors

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Packaging Products

74% of Sales 62% of EBITDA

Cascades

LTM Sales: $3,795M LTM EBITDA: $317M EBITDA Margin: 8% Tissue Papers

26% of Sales 38% of EBITDA Containerboard

33% of Sales 36% of EBITDA

Boxboard Europe

21% of Sales 12% of EBITDA

Specialty Products

20% of Sales 14% of EBITDA

Exposure to two healthiest sectors in the Pulp and Paper industry

LTM figures as at 09/30/2013. EBITDA excluding specific items. Breakdown of sales and EBITDA before eliminations & corporate activities.

EBITDA Margin: 10% EBITDA Margin: 5% EBITDA Margin: 7% EBITDA Margin: 13%

315 350 306 465 310 229 304 317

100 200 300 400 500 2006 2007 2008 2009 2010 2011 2012 09/30/13 LTM

(M CAN$)

EBITDA

3,278 3,929 4,017 3,877 3,182 3,625 3,645 3,795

2,500 3,000 3,500 4,000 4,500 2006 2007 2008 2009 2010 2011 2012 09/30/13 LTM

(M CAN$)

Sales

OUR FINANCIAL PERFORMANCE

Historical performance

Results progressing as productivity, FX and pricing environment improve

EBITDA excluding specific items. Note 1 – Elimination of joint venture consolidation Note 2 – Impact of Dopaco divestiture and elimination of joint venture consolidation

IFRS CANADIAN GAAP

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IFRS CANADIAN GAAP

1 2

27 19 21 23 26 25 25 33 42

0% 4% 8% 12% 16% 12 24 36 48 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 (% of sales) (M CAN$) Containerboard

10 10 13 11 7 11 11 10 9

0% 3% 6% 9% 12% 5 10 15 20 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 (% of sales) (M CAN$) Boxboard Europe

13 2 11 15 15 8 11 16 15

0% 3% 6% 9% 12% 5 10 15 20 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 (% of sales) (M CAN$) Specialty Products

18 28 33 39 35 31 29 33 39

0% 5% 10% 15% 20% 11 22 33 44 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 (% of sales) (M CAN$) Tissue Papers

OUR FINANCIAL PERFORMANCE

Historical segmented EBITDA

EBITDA excluding specific items.

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Tissue Papers Containerboard Boxboard Europe Specialty Products

OUR BUSINESS DRIVERS – PRICES

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400 500 600 700 800 900 1 000 1 100 juil.-10 sept.-10 nov.-10 janv.-11 mars-11 mai-11 juil.-11 sept.-11 nov.-11 janv.-12 mars-12 mai-12 juil.-12 sept.-12 nov.-12 janv.-13 mars-13 mai-13 juil.-13 sept.-13

Containerboard - Selected Products

20-pt clay coated news (CRB) Linerboard 42-lb Corrugating medium 26-lb

800 900 1 000 1 100 1 200 1 300 1 400 1 500 1 600 juil.-10 sept.-10 nov.-10 janv.-11 mars-11 mai-11 juil.-11 sept.-11 nov.-11 janv.-12 mars-12 mai-12 juil.-12 sept.-12 nov.-12 janv.-13 mars-13 mai-13 juil.-13 sept.-13

Tissue Papers - Parent rolls

Virgin parent rolls Recycled parent rolls

• Two price increases in 2013 after 28 months
• f flat pricing
• Additional capacity coming to market and

ample supply of recovered papers having an impact on the price of recycled parent rolls Price increases in containerboard have been beneficial

50 60 70 80 90 100 110 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00

Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13

Crude oil (US$) Natural gas (US$)

Energy prices

Natural gas (US$/mmBtu) Crude oil (US$/barrel)

Stronger CAN$ and significant variable cost inflation negatively impact results

OUR BUSINESS DRIVERS – ENERGY AND FX

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• US$/CAN$ forecasts by top Canadian banks
• Range 2014  0.90 to 0.99 (average 0.95)
• Range 2015  0.93 to 0.98 (average 0.96)

0.65 0.70 0.75 0.80 0.85 0.90 0.95 0.80 0.85 0.90 0.95 1.00 1.05 1.10

Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13

€/CAN$ US$/CAN$

Exchange rates

US$/CAN$ €/CAN$

A weaker CAN$ would be a game changer1

Source: Bloomberg 1 EBITDA sensitivity of $7M to every change of C$0.01 vs $US; balance sheet impact on US debt conversion

Energy costs higher than last year

2012

Averages

Year Year Q3 Energy prices Natural gas Henry Hub (US$/mmBtu) 4.04 2.79 3.58 28%

• 13%

Crude oil WTI (US$/barrel) 94.01 94.92 102.42 14% 11% Change 2011 Q3 2013 Q3 2012 Q3 2013 Q2 2013 2013

Current (October)

No significant short term increase expected in recovered paper prices

Sources: RISI, PPI International

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120 155

50 100 150 200 250 300

Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13

(US$/ ton)

Recycled Fiber North American List Prices

White grades (SOP) Brown grades (OCC)

OUR BUSINESS DRIVERS – RAW MATERIAL COSTS

US OCC Costs Highly Correlated with Asian Board Market Recycled Fiber North American List Prices

60 90 120 150 180 210 240 270 300 2,000 2,500 3,000 3,500 4,000 4,500

Dec 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009 Mar 2010 Jun 2010 Sep 2010 Dec 2010 Mar 2011 Jun 2011 Sep 2011 Dec 2011 Mar 2012 Jun 2012 Sep 2012 Dec 2012 Mar 2013 Jun 2013 Sep 2013

Kraft-Top liner 175g - Domestic Price - China (RMB/tonne) OCC (11) - US - LA/SF export to China - CFR (US$/ton)

Greenpac start-up July 15 GreenFence program

• Experts estimate Chinese collection rate at approx. 46%
• Will increase as domestic consumption increases

Largest recycled paper collector in Canada

OUR BUSINESS DRIVERS – RAW MATERIAL STRATEGY

Our North American Recycled Fibre Supply

• Short term:
• constant review of our inventory

strategy

• prepare for Greenpac project to

minimize market disruption

• Long term:
• ensure control over fiber supply
• develop substitute grades
• potential to increase virgin

content in certain circumstances

• continue to close the loop with

customers retailers Our Strategy

Contractual

Agreement 40%

Cascades Recovery and Internal 33% Spot Purchases 27%

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2012

Currently control

• ver 70% of our

fibre supply despite greater concentration

• n the supply

side

Improve our ROCE to reach our cost of capital Reach industry comparable leverage ratios Improving our profitability and financial situation through our Action Plan ACTION PLAN PRIORITIES MEDIUM TERM OBJECTIVES Modernize core operations through focused investments Optimize capital allocation and reduce working capital Restructure underperforming units 2 3 1 Innovate to improve and develop processes and products 4

OUR STRATEGIC ACTION PLAN

Four priorities

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Modernize core operations through focused investments

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Initiatives undertaken since the beginning of our Action Plan

Containerboard – Manufacturing Containerboard – Converting

• Construction of the Greenpac linerboard mill in Niagara Falls, NY
• Consolidation of our platform in Ontario
• Consolidation of our folding carton platform in Canada
• Installation in 2010 of an ATMOS machine in Candiac
• Installation of a new paper machine in Oregon (Q4-2014)
• Additional converting capacity in Arizona early in 2014

Boxboard – Converting Tissue Papers – Manufacturing Tissue Papers – Converting

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• Satisfied with productivity and board quality
• Average production during Q3: 532 tons/day
• Production peaks > 1,300 tons/day
• Positive EBITDA in September
• Largest recycled linerboard mill in NA:
• 1,500 s.t./day of lightweight

recycled linerboard (26 pounds)

• Product differentiation
• Most technologically advanced

equipment Operational Facts

OUR NEW GREENPAC LINERBOARD MILL

Modernize core operations through focused investments

1

Ramp-up Highlights

ILLUSTRATIVE GREENPAC CONTRIBUTION TO EPS

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Greenpac has the potential to contribute significantly to Cascades EPS

Cascades' EPS (excluding specific items) 2010 $0.83 2011 ($0.14) 2012 $0.17 09/2013 LTM $0.12 Greenpac Depreciation Income Net CAS' CAS' share of Impact on Value per share EBITDA & Interest tax (39%) income interest income Cascades EPS using 7x (M$) (M$) (M$) (M$) (M$) EBITDA multiple 60 40 8 12 59.7% 7 $0.08 $0.76 80 40 16 24 59.7% 15 $0.16 $1.65 100 40 23 37 59.7% 22 $0.23 $2.54 10 $0.45 Sensitivity



Smurfit Stone 20%



Weyerhaeuser 16%



IP 11%



Georgia Pacific 11%



Temple Inland 9%



PCA 6%



Cascades 3% Others 24% Top-5 67%

THE CONTAINERBOARD MARKET

Sources: Company reports and estimates, RISI, Fiber Box Association, Paper Packaging Canada. Cascades’ capacity includes 100% of Greenpac

Cascades has maintained its market share in a consolidated industry

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Changing landscape: Leading 3 North American Producers representing 62% of the market

% of total capacity

2007 Industry Participants



IP 32%



Rock Tenn 19%



Koch/GP 10%



PCA (incl. Boise) 9%



Kapstone (incl. Longview) 4%



Cascades 3%



Pratt 3% Others 20% Top-5 74% 2013 Industry Participants

Optimize capital allocation and reduce working capital

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Selected initiatives undertaken since the beginning of our Action Plan Corporate – Working cap initiative

• Acquisition and conversion of Boise

paper machine next to our existing tissue machine to:

• increase our capacity by 55,000 tons
• n a faster timeline
• improve the overall operating

efficiency of the mill

• increase market reach at a reduced

capital cost per ton

• $35M cost and with start-up in Q4-2014

14.7% 14.8% 14.8% 15.0% 14.8%14.4% 14.0%13.5% 13.1%

8% 10% 12% 14% 16% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

LTM Working Capital (% of LTM Sales)

Tissue Papers – Western US

THE TISSUE PAPERS MARKET

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New capacity to have more impact on brands but potential trickle-down to AfH

Sources: RISI, Company reports and estimates

Capacity additions CAGR of 1.6% in the tissue sector, close to annual consumption growth Top 5 – North American Tissue Producers



Koch/GP 29%



P&G 16%



Kimberly-Clark 15%



Cascades 7%



SCA 6% Others 27% Total - 2013 8,671

% of total capacity 9,200 9,000 8,800 8,600 8,400 9,400 8,200 8,000

New capacity 2017

9,249 474

2013 New capacity

8,671

New capacity

157

2011

8,514

New capacity

149

2009

8,365 9,145

2015

104

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Cascades’ Tissue Papers YTD 09/2013 Sales – End-Users

Branded 51% Private label 49% Branded 10% Private label 90%

Cascades’ Tissue Papers YTD 09/2013 Sales – Countries

Retail 40% AfH 60% Retail 48% AfH 52%

Canada (26%) US (74%)

Retail 34%

Parent rolls 26%

AfH 40% 97% private label 34% branded

OUR POSITIONNING IN THE TISSUE PAPERS SEGMENT

Optimize capital allocation and reduce working capital

2

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OUR EQUITY INVESTMENT IN BORALEX

• No capital allocated to Boralex; valuation does not fully reflect growth potential
• Current BLX share price: $10.70 - represents ±$1.50/share for CAS

Boralex has three projects which are about to be commissioned

Restructure underperforming units

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Difficult decisions taken since the beginning of our Action Plan

• 12 closures
• Containerboard: 1 manufacturing mill + 5 converting plants
• Boxboard North America: 1 converting plant
• Boxboard Europe: 2 mills + 1 paper machine
• Specialty Product: 1 pulp mill + 1 specialty packaging plant
• Tissue: 1 napkin plant
• 4 sales
• Containerboard – Manufacturing

Avot-Vallée mill

• Boxboard – Manufacturing

Versailles mill

• Boxboard – Converting

Dopaco business, Hebron plant

Villa S. Lucia 220k tons recycled WLC Wednesbury Sheeting centre Blendecques 110k tons recycled WLC Almazan 35k tons recycled WLC Magenta Idle Arnsberg 220k tons recycled WLC Ovaro 95k tons recycled WLC & other grades

• S. Giustina

220k tons recycled WLC Llica de val (Barcelona) Sheeting centre Cascades mills Djupafors 60k tons virgin FBB La Rochette 150k tons virgin FBB Careo – sales offices RdM mills and plants

OUR INTEREST IN RENO AND OUR EUROPEAN PLATFORM

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• Results from 2007 transaction: we received a 31% interest in exchange for our recycled

mills

• We now own ~58% of public Italian company (fully consolidated in our results)
• Allowed for rationalization of production capacity and amalgamation of sales forces

Restructure underperforming units – now 2nd producer of boxboard in Europe

3

RdM achievements

• From 10 to 7 machines with

same production capacity

• Implementation of

Paneuropean direct sales network

• >90 M€ of capex to

modernize asset base

• €12M of fixed cost saving

program achieved

Innovate to improve and develop processes and products

4

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Moka – Beige bath tissue Antibacterial Towel Ultrafit – Cup tray Won prestigious HAVI Global Supplier of the Year and McDonald’s System First Award Won prestigious Edison Award Gold Medal

Some of our activities aim at achieving 10% of sales from new products

EVOKTM – Polystyrene foam packaging using recycled material

Stable source of revenues and platform for innovation

OUR SPECIALTY PRODUCTS GROUP

LTM sales of $962M in four main sectors of activities (including joint ventures)

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Recycling and Recovery (23 units)

• 28% of sales
• Largest recycled

paper collector in Canada

Specialty Papers (6 units) Industrial Packaging (11 units) Consumer Packaging (7 units)

• 30% of sales
• Eco-friendly fine and

security papers

• 30% of sales
• Leading producer of

papermill packaging

• $10-15M EBITDA

under equity method

• 12% of sales
• Largest

producer of honeycomb in Canada

OUR FINANCIAL SITUATION

Investment program

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Gradual capex program to improve asset base Capital Expenditures Distribution for 9-month period as at 09/30/2013 - $107M

• Capital expenditures for 2013 will stand at

around $150M

• Currently budgeting for 2014 requirements
• Likely to revolve around same amount as

in 2013

• Including ~$60-70M of maintenance capex
• Amount subject to change depending on
• perating results and economic conditions
• Mostly dedicated towards tissue activities

Corporate 7% ERP & IT 14% Boxboard Europe 18% Tissue Papers 24% Specialty Products 13% Container- board 24%

By segment

1,397 1,601 (298) (452) 32 297 342 125 103 56 500 700 900 1 100 1 300 1 500 1 700 Net Debt 12/31/2010 Dopaco sale Cash flow from op.

• Var. of

working Capital $CAN

• Acqu. &

consol. Capex, net of disp. Greenpac investment Leases &

• thers

Dividends & buy-backs Net Debt 09/30/2013 (M CAN$) (1)

DIVESTITURE TO FINANCE OTHER GROWTH INITIATIVES

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Increase in debt since 2010 essentially related to accounting consolidation of Reno ($149M)

Divestitures and FCF have funded acquisitions and capex

5.9x 3.3x 4.5x 5.8x 5.0x 5.0x 3.0x 4.0x 5.0x 6.0x 7.0x 2008 2009 2010 2011 2012 LTM 09/30/2013

Net debt / LTM EBITDA

3.0x 4.6x 2.9x 2.5x 3.0x 3.1x 1.0x 2.0x 3.0x 4.0x 5.0x 2008 2009 2010 2011 2012 LTM 09/30/2013

Interest Coverage Ratio 28

Leverage ratio almost at 2012 level while pursuing modernization plan

OUR FINANCIAL SITUATION

Consolidated Financial Ratios

Q2 and Q3 have been more reflective of earning power; S2 annuallized would give 4.5x

No significant maturity before 2016 and sufficient liquidity

Revolver (CAN$750M) + Senior unsecured notes (CAN$200M) Senior unsecured notes (US$500M) 29 Senior unsecured notes (US$250M)

Maturities well spread out

• Senior Notes:

Million

• Dec 2016@7.75%

$200

• Dec 2017@ 7.75%

US$500

• Jan2020@7.875%

US$250 $964

• Banking Facilities (drawn):

$522

• Other Debt (net):

$115

• Total Net Debt:

$1,601

• Available Liquidity (09/2013): $228

OUR FINANCIAL SITUATION

Debt Maturities

100 200 300 400 500 600 700 800 2014 2015 2016 2017 2018 2019 2020

(M CAN$)

30

Advantageous credit terms providing flexibility

February 2011 February 2012

Structure

$750 M revolving credit facility $750 M revolving credit facility

Maturity

February 2015 February 2016

Interest rate

LIBOR + 212.5 bps LIBOR + 175 bps

Standby fees

48 bps 35 bps

Covenants1

Funded Debt to Cap Ratio ≤ 65% Interest Coverage Ratio ≥ 2.25x Funded Debt to Cap Ratio ≤ 65% Interest Coverage Ratio ≥ 2.25x Current Debt / Cap Ratio : 55% Current Interest Coverage Ratio : 3.1x

OUR FINANCIAL SITUATION

Credit Agreement Terms

31

Taking the right steps to position Cascades for the future

CONCLUSION

Potential Benefits Stemming From Our Recent Initiatives

Tissue Papers: strong and growing position

• Increasing presence in the US and recent expansion announcement in the West
• Better performance from ATMOS tissue paper machine

Containerboard: great fundamentals and improved platform

• Modernized converting platform and manufacturing productivity improvement
• Greenpac contribution

Modernizing our operating platform to increase profitability

• ±$150M capex program per year, including ERP upgrade
• Divestitures and closures of under-performing units

Other sources of growth and incremental value

• Culture of innovation
• European platform
• Boralex project pipeline

   